Apple cuts orders for iPhone 5 parts on weak demand: Nikkei

Shares in Apple Inc dipped below $500 for the first time in almost one year after reports it is slashing orders for screens and other components as intensifying competition erodes demand for its latest iPhone.

Japan’s Nikkei reported on Monday that the world’s largest technology corporation began sharply reducing buying of liquid crystal displays about a month ago from suppliers like Japan Display Inc and Sharp Corp.

The report, later matched by the Wall Street Journal, comes as hard-charging rivals like Samsung Electronics, which makes phones based on Google Inc’s popular Android software, continue to expand market share globally.

Apple stock slid more than 4 percent to an intraday low of $498.51 — a level not seen since February 16, 2012 — before bouncing back to trade just above $500 at midday. The news also hurt shares of suppliers such as Cirrus Logic Inc, which dived 9 percent.

Some analysts argued that Apple and its manufacturing partners had struggled with quality issues that might have curtailed production times.

“Our checks with supply chain contacts close to the situation identified a very different cause: a slower ramp in the manufacturing of iPhones and iPads (reflecting some quality control issues) and insufficient production lines,” said Joane Feeney of Longbow Research.

“Rather than ordering more components and having inventory build up further, Apple put component suppliers on notice to hold off, for the time being, on further shipments until it expanded its production lines – which it plans to complete by the end of the quarter.”

By some estimates, the holiday quarter may have been the worst for U.S. retailers since the 2008 financial crisis, with sales growth far below expectations. Other data yields a more mixed picture of holiday season demand.

Apple was not immediately available for comment. No one at Sharp was immediately available to comment on Monday – a national holiday in Japan – and parts suppliers to Apple in Taiwan declined to comment.

CUTBACKS

Apple has asked Japan Display, Sharp and LG Display Co Ltd to roughly halve supplies of LCD panels from an initial plan for about 65 million screens in January-March, the Nikkei cited people familiar with the situation as saying.

Japan Display’s plant in southwest Japan, where Apple has invested heavily, is expected to temporarily reduce output by up to 80 percent from October-December levels, the Nikkei reported, while Sharp’s dedicated facility for iPhone 5 LCDs will trim production in January-February by about 40 percent.

The move, if confirmed, would tally with analysts saying that sales of the new iPhone 5, which was released in September, have not been as strong as anticipated.

Apple has lost ground gradually to South Korean rival Samsung, as well as smaller, fast-growing rivals such as China’s Huawei Technologies Co Ltd and ZTE Corp.

Samsung overtook Apple in 2012 to become the world’s biggest seller of smartphones, helped in part by the popularity of its Galaxy Note II phone-cum-tablet and a vastly wider range of low- to high-end devices that appeal to a broad swath of consumers. Apple rolled out a single new smartphone last year.

Jefferies analyst Peter Misek trimmed his iPhone shipment estimates for the January-March quarter on December 14, saying that the technology company had started cutting orders to suppliers to balance excess inventory.

Apple also cut its orders for memory chips for its new iPhone from its main supplier and competitor Samsung, Reuters reported in September, quoting sources with direct knowledge of the matter.

The company has been cutting back its orders from Samsung as it seeks to diversify its memory chip supply lines.

Samsung said on Monday that global sales of its flagship Galaxy S smartphones had topped 100 million since the first model was launched in May 2010. The Galaxy S3, launched last May, sold more than 40 million in seven months.

The Galaxy S IV is expected within months and may sport an unbreakable screen, full high-definition quality resolution of 440 pixels per inch, and a more powerful processor.

It’s expected to increase its smartphone sales by more than a third this year and widen its lead over Apple, according to researcher Strategy Analytics. It forecast Samsung will sell 290 million smartphones in 2013 versus iPhone sales of 180 million.

Kim Sung-in, an analyst at Kiwoom Securities in Seoul, sees Samsung shipping 320 million smartphones this year and doubling sales of its tablets to 32 million.

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